New York Federal Court Grants Insured’s Motion To Amend Complaint

The United States District Court for the Southern District of New York recently granted the plaintiff-insured’s motion for leave to amend its complaint and to add its affiliate as a new co-plaintiff over the title insurance companies’ objections.  See Morris Builders, L.P. v. Fidelity National Title Insurance Co. et. al., 2017 WL 5032996 (S.D.N.Y. 2017).  In 1989, the defendant title insurance companies issued title insurance policies to plaintiff to cover plaintiff’s long-term development lease of a property.  In 2011, plaintiff discovered an alleged title defect, namely that portions of the property were dedicated public parkland owned by the city, and put defendants on notice of the same.  The next year, plaintiff entered into a sublease agreement with a tenant to develop a retail store on the parcel of land that contained the alleged title defect.  In 2014, plaintiff commenced a federal action against the parties that had leased it the disputed property and, in 2016, the parties settled the lawsuit.  As part of the settlement, plaintiff obtained title to the disputed property.  On that same day, plaintiff assigned the sublease to its affiliate, MWR, and sold MWR the property at issue.  Plaintiff commenced this action against defendants in 2016, and in 2017, the tenant notified plaintiff and MWR that it was going to terminate the sublease, allegedly in part because of the title issue.  Plaintiff then moved to add MWR as a co-plaintiff, to add factual allegations about the sublease, and to seek additional damages attributable to the termination of the sublease.   

The Court granted plaintiff leave to amend the Complaint over defendants’ objections.  First, the court held that MWR had standing and could be added as a party—even though it was not an insured under the policy—because MWR was alleged only as a nominal party and did not seek damages separate from plaintiff.  Second, the Court held that plaintiff itself had standing to assert a claim for damages arising from the termination of the sublease because, under the policy, plaintiff could recover for “damages which the insured may be obligated to pay to any sublessee on account of the breach of any sublease of all or part of the land caused by the eviction.”  Although defendants disputed the applicability of this provision to plaintiff, who had assigned the sublease to MWR, the Court found that “this motion to amend is an inappropriate means by which to adjudicate the precise meaning of the title insurance policy” and that defendants would have the opportunity to litigate that issue later in the action.  Finally, the Court held that plaintiff could amend the complaint to add additional damages arising from the sublease because these were not a new causes of action.  It did hold, however, that “[d]efendants may . . . challenge plaintiff's damages on a motion for summary judgment or at trial.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com or Dylan Goetsch at dgoetsch@riker.com.